Cotton's Week July 27, 2001

Cotton's Week July 27, 2001

Cotton's Week: July 27, 2001

House Ag Committee Completes Farm Bill Markup

House Agriculture Committee on Friday completed markup of new farm legislation. Chairman Combest and Ranking Member Stenholm (D-TX) continued process of developing new legislation by presenting committee with legislation that closely followed provisions of draft concept paper released earlier. Provisions covering commodity programs (including soybeans) would include continuation of non-recourse marketing loan, fixed decoupled payment and decoupled counter-cyclical payment based on target price concept.

Producers may choose to update bases for payment by selecting average acres planted to Agriculture Market Transition Act (AMTA) contract crop and/or oilseed during ’98-01 or use current AMTA payment base. Payment base is 85% of base acres. Current AMTA yields will be used to calculate payments, with Ag Secretary instructed to assign comparable yields to oilseeds and farms without current yields.

Since publication of concept paper, Congressional Budget Office has revised some cost estimates and as result legislation presented to committee included revisions to earlier-reported target prices and fixed payments. Although these payments have been adjusted upward from concept paper levels, it should be noted that if Senate’s Emergency Assistance Package (see related story) provides for more than $5.5 billion in spending, then House committee’s spending level would have to be adjusted downward, affecting proposed target price and fixed payment.

Crop

Loan Rate

Fixed Payment

Target Price

Cotton

51.92

6.67

73.6

Wheat

2.58

.53

4.04

Corn

1.89

.30

2.78

Soybeans

4.92

.42

5.86

Rice

6.50

2.35

10.82

Measure includes non-recourse ELS loan at current rate of 79.65 cents and authorizes competitiveness provisions for life of bill without funding ceiling.

Bill also reauthorizes Market Access Program through ’11, with annual funding increased from $90 million to $200 million, amount at which program originally was funded in 1992. Foreign Market Development Program also was reauthorized at $35 million per year.

During debate on commodity titles, Rep. Smith (R-MI) offered amendment that would have eliminated certificates and required USDA to convert all outstanding commodity loans to recourse loan if $150,000 limit on loan deficiency payments (LDP) and marketing loan gains (MLG) was reached. Smith contended amendment would save $538 million that could be used to boost LDPs and MLGs for "small" farmers. Amendment was rejected. Rep. Dooley, expressing concern that spending for research would actually decline over next 10 years, proposed shifting 2% of funds from fixed payment category to research to boost spending on research by $1 billion over 10 years. His amendment also was rejected. Proposal to shift $200 million from Conservation Reserve Program to research was accepted. Amendment by Rep. Berry (D-AR) to increase $75,000 limit on LDPs and MLGs to $150,000 was approved. In addition, payment limit is increased from $40,000 to $50,000 for fixed decoupled payments. During debate, committee discussed conservation, rural development, trade and research but made very few changes to legislative package developed and offered by Chairman Combest and Stenholm. In significant departure from current policy, new peanut program based on marketing loan is included in package.

Committee Urged to Eliminate 1.25-Cent Step 2 Threshold

Rep. Hayes introduced amendment during House Ag Committee consideration of farm bill markup to eliminate 1.25-cent Step 2 threshold for next 2 years and to provide Ag Secretary with authority to continue to waive threshold in years ’04-11 when certain conditions exist. Rep. Hayes explained that US textile industry is suffering severe economic losses and that elimination of threshold would provide important boost to US cotton producers’ best customers. Under rules of markup, increased cost (as scored by Congressional Budget Office) required budget offset by reducing costs in other programs. Since offsets likely would have drawn opposition from non-Cotton Belt members, Rep. Hayes withdrew amendment with request that chairman continue to work with him in effort to incorporate elimination of 1.25-cent threshold in final farm bill to be sent to President.

Measure also would make $100 million available for cottonseed assistance, with $66 million to be paid on ’00 crop and $34 million on ’01 crop. Bill also provides $500 million for eligible oilseed producers. Other provisions include $55.21 million for peanuts and assistance to sugar, honey, wool and mohair and $220 million to purchase certain specialty crops. Legislation also would make producers of crops on non-production flexibility contract farms eligible for loan deficiency payments if such payments are in effect. Chairman Harkin’s (D-IA) package also includes extensive funding for conservation programs.

During debate, Republican Senators indicated concern that several items in package did not constitute emergency coverage and suggested they would prefer package targeted primarily to commodities so that new farm legislation would have sufficient funding for conservation, nutrition, rural development and other programs.

Full Senate is expected to consider measure week of July 30. Budget resolution provides $5.5 billion for emergency assistance, but it must be distributed by Sept. 30.

National Press Club is Venue for Exchange Rate Discussions

NCC President and CEO Gaylon Booker, among panelists convened by Economic Strategy Institute to focus on effect of strong dollar on global economy, told National Press Club audience in Washington, DC, that US cotton industry is adversely affected by strong dollar, or weak foreign currencies, in 2 fundamental ways: (1) foreign cotton producers buy inputs with local currencies and sell their fiber for US dollar, giving them significant exchange rate advantage in spread between input costs and selling price, and (2) strong dollar makes foreign-produced textile products cheaper in US market, escalating rate of growth in textile imports.

Booker noted 45 US textile plants have closed since January, with corresponding loss of 15,000 textile jobs. He said, "Casualties include some of the biggest names in textiles. This is not just a situation where marginal operations are being weeded out. The economic situation in the US textile industry has reached crisis proportions, jeopardizing the entire US cotton production base as well as the processing and handling infrastructure."

Commenting on panel discussion, Booker said, "There was not much sentiment among panelists for changes in US fiscal and monetary policy. Most participants believe that efforts to manage relationships among global currencies are futile." Booker told group that cotton industry leaders had sensed that there was little opportunity for influencing significant change in US or global monetary policy and, therefore, cotton industry was exploring remedies by focusing on opportunities for addressing symptoms of strong dollar. Among NCC’s initiatives are efforts to: (1) eliminate 1.25-cent threshold currently used in computing Step 2 payment rates, and (2) make exchange rate adjustments to "A" Index or AWP that would affect larger Step 2 payments and/or reduce CCC loan redemption rates.

Second paperwork reduction process involves distribution of specifications. Industry members are encouraged to obtain specifications from Publications and Education section of NCC web site, www.cotton.org. USDA’s CCC office in Kansas City and state and county FSA office personnel also will direct industry members to NCC web site for that document. This will enable NCC and USDA to reduce production and mailing of multi-page specifications by 80%.

Tough New Biotech Laws Pass in Europe

European Commission (EC) passed world’s most stringent rules on labeling of biotechnology enhanced (BE) foods, ignoring concerns that move could further sour relations with US.

EC claims that rules were designed to restore consumer confidence in safety of food derived from biotechnology and persuade European Union governments to end almost 3-year moratorium on approving new BE crops. Proposals have caused consternation in US and among other trading partners.

US Trade Representative Zoellick said EC’s proposal "extends far beyond health protections for consumers and, in fact, creates onerous and impractical regulatory barriers." He also said such trade obstacles would hurt interests of developing countries by discouraging further use of biotechnology to improve nutrition, lower food costs and reduce reliance on pesticides. Countries such as Canada and Argentina fear system will further hit their exports and say it could be contrary to World Trade Organization rules.

New regulations would establish centralized approval process for authorizing biotech products for food or feed. They also would establish detailed system to trace BE products through entire food chain from farm to supermarket and require all foods derived from BE crops to be labeled as such, even if they no longer contain any modified DNA or protein. Cottonseed oil would be included in such labeling.

Products would be exempt from labeling only if they accidentally contained BE material and it was less than 1%. Non-approved materials that found their way accidentally into food would be allowed up to threshold of 1%, as long as they had received positive assessment from EU scientists.

EU governments and European Parliament still must approve plans before they are effective.

EPA Seeks Public Comment on Bt Re-Registrations

EPA must complete final decisions on re-registrations of all Bt crops by Sept. 30, when extended registrations expire. Agency released its document regarding risk mitigation proposals at public meeting in Arlington VA.

Document requests written public comments by Aug. 30 on series of questions, including refuge sizes, distances, compliance improvement, enhanced monitoring and remedial action plans in event of resistance.

Paper suggests that EPA will increase unsprayed option for Bollgard cotton to 10% while increasing distance requirement to one mile. It also seems that agency will retain 80/20 sprayed option and is asking for comments on community and embedded refuges.

Cotton use by domestic textile mills in June (5-week month) was estimated by Commerce Department at 365.99 million pounds, equaling seasonally adjusted annualized rate of 7.8 million 480-pound bales. This is well below last year’s June annualized rate of 10.46 million bales and is lowest annualized rate since 7.7 million bales in December ’90.

Commerce revised May (4-week month) estimate of domestic mill use up slightly to 312.7 million pounds, approximately 2.9 million pounds above previous estimate of 309.8 million. Seasonally adjusted annualized rate of consumption for May is 8.1 million bales, 2.05 million bales below last May’s estimate of 10.16 million bales.

Preliminary July domestic mill use of cotton and revised June figures will be released Aug. 24.

Cotton Sales Drop in Latest Week

Net export sales for week ending July 19 were approximately 62,100 bales (480 lb.), approximately 24% lower than previous week’s sales, raising total ’00-01 sales to slightly over 8.4 million. Total sales at same point in ’99-00 marketing year were approximately 7.8 million bales.

Shipments for week were 154,900 bales, bringing total exports to date to approximately 6.53 million bales, down from almost 6.7 million at comparable point in ’99-00 marketing year.

Step 3 Count at 3 Weeks

Third week of 4-week count toward opening Step 3 import quota was reached for week ending July 26. Eligible week is determined when value of Step 2 certificate increases from that of previous week. Step 2 certificate value for week ending Aug. 2 is 3.47 cents/lb. Based on values of forward USNE and "A" Index as of July 27, Step 2 certificate for week ending Aug. 9 would be in excess of 8 cents/lb., and Step 3 import quota would be triggered. Each Step 3 import quota is for one week's worth of seasonally adjusted mill use based on latest 3 months for which data are available. Cap on total landed imports under Step 3 is 5 weeks of domestic mill use.